US GDP

The Federal Reserve has just released its Survey of Consumer Finances for the year 2013. These surveys occur every three years, so this is the first comprehensive update we have gotten about the distribution of income and wealth in the US since the economy hit bottom four years ago. The most striking finding is that the median American family earned 5 per cent less in 2013 than in 2010 after inflation even though the average American family took home 4 per cent more.

Can just one product deliver a 1 per cent boost to Chinese export growth? If that product is Apple’s iPhone 6, then potentially yes. So says BoAML’s China Economist Ting Lu, who presents the iPhone 6 case for Chinese exports as follows (our emphasis): Though iPhone is an American product, it’s assembled in Mainland China (henceforth China) and all iPhones, except those sold in China, and are counted as China’s exports. The iPhone 6 is also important for Taiwan because the economy provides a significant amount of iPhone components including producing processors.

We had feared that one of most famous of Chinese statistical quirks might have abandoned us forever. The reported combined GDP of China’s provinces came in only slightly above its national GDP in the first quarter, amid reports that more than 70 smaller Chinese cities were dropping GDP as a performance metric. Perhaps as China stopped evaluating its local government officials on a narrow GDP basis, the officials would stop doing the obvious and fiddling their GDP numbers. That would in turn stop the sum of China’s regional GDPs always coming in ahead of the national figure… as well as helping with things like unequal income distribution, problems with the social welfare system and environmental costs.

Credit Suisse’s global demographics research team came out with a new note on Friday featuring some enlightening charts about the US economy. It provides a handy way of evaluating the country’s lackluster performance since 2000, as well as a few longer-term trends. As the CS team notes, GDP growth can be decomposed into three distinct forces: growth in the population of working-age people, growth in the number of hours worked by each working-aged person, and productivity growth.

A small squall or a broad based pall? BCA Research have spotted that small capitalisation stocks have been under pressure all around the world, in the US, Europe, Japan Asia and even, say they, the UK. The reason, BCA suggests, is wage costs.

Ukraine, Georgia and Moldova agree closer ties with EU || Italy leads calls to slow sanctions against Russia || Merkel to limit Juncker fallout || Berlin drops Verizon over US spying fears || Banks start to drain Barclays dark pool || NYSE has won the coveted listing of Alibaba || The World Bank has issued its first ever catastrophe bond || Wall Street banks create corporate bond trading platform || GoPro Shares Jump 31% in Debut || American Apparel faces loan repayment || Markets

This nifty chart from a recent Credit Suisse note shows the rejuvenated growth in global goods demand since roughly the start of 2013, a favourable sign for industrial production.

How many sovereign debtors get to be both in hock to the Russians, and using the United States’ full faith and credit to borrow fresh money? Though we suppose Ukraine’s a special case:

Bank of America Merrill Lynch strategist Michael Hartnett has offered a call to arms to thematic thinkers everywhere. Invoking Dr Seuss he, well, judge for yourself: In the next 40 years, the world will run out of oil. In the next 10 years, a laptop will communicate faster than a human brain. In the next 10 days, 112,000 people will retire in the US, Japan and Europe. Today, 56% of the world economy has zero interest rate policies. Tomorrow, there will be over 3.3 billion searches on Google. And in the next 10 seconds, the US national debt will rise by $322,000. Cyclical and secular trends are transforming at a fast and meaningful pace.

FURTHER FURTHER READING - A GDP chart that demands attention.

Markets: “Asian stocks swung between gains and losses as investors weighed corporate earnings before the Federal Reserve decides on U.S. monetary policy. The Bank of Japan refrained from expanding stimulus.” (Bloomberg)

Markets: Asian markets were under pressure in the face of fresh tension in Ukraine and after the S&P 500 dropped to a two-month low on Friday. However, action was muted as investors waited for key Asian data later in the week, including China GDP figures on Wednesday. The US earnings season also ramps up, with about 10 per cent of S&P 500 companies set to report this week. (FT’s Global Markets Overview)

The pseudonymous Jesse Livermore returns to his mission of demolishing favourite bear arguments, hollow reasoning he thinks has served too long as an excuse to avoid investing. The latest forray is on the subject of US margins, which for the last decade appear to have been much higher than during the half century that preceded it. Inevitable reversion to the mean, means corporate profitability must (one day) fall, say the pessimists.

Like other parts of the US economic recovery — housing, the labour market — capital expenditures by companies have been a letdown recently, even accounting for the weather. The latest example came in Wednesday’s durable goods report, in which the “nondefense capital goods orders excluding aircraft” component fell. (That figure is a proxy and obviously doesn’t capture everything that normally counts as capex, which also includes investment in property and structures, imported capital goods, and certain intangible assets. Capex is often poorly or loosely defined in discussions about it.)

FURTHER FURTHER READING -”Keynes’ theory, in other words, is just as compatible with small, lean governments as it is with large, powerful ones.”

Interruption not inflection, says BoAML’s Michael Hartnett, who sees the beginning not the end of the fun.

FURTHER FURTHER READING - How much did Goldman rip Libya off?

Here’s a rough sketch of the variables influencing US inflation, which has been remarkably low for two years running: 1) The remaining labour market slack, including a staggering and resilient long-term unemployment problem. The amount of slack remains tough to know given the difficulty of measuring the cyclical vs secular components of the fall in the labour force participation rate. Much more on this later. 2) The output gap. This isn’t a well-defined idea, we know, but few people would argue that the US economy is producing at potential. The US economic recovery does appear to have accelerated in the final two quarters of last year (the December jobs report notwithstanding), and the conditions for growth look better than they have in years. If the nascent acceleration proves sustainable, then the labour market may well tighten up and push wages higher. Obviously this is related to the first point about labour market slack, and plenty of caveats are needed given the head-fakes of the last four winters.

Too early to declare crisis over, says Draghi || Congress push on fast-track authority boosts trade deal hopes || China becomes world’s biggest trader in goods || Alcoa admits links to corrupt international underworld || NY probes banks over early warnings tips to select fund managers || Spain’s Bankia returns to capital markets || Goldman-owned miner Colombian National Resources halts coal exports || Apollo Global Management closes flagship fund || EU antitrust regulators clear $35bn merger of Omnicomand Publicis || Markets

As we’ve noted before it’s all feeling a little 1999 out there. Lombard Street ‘s Dario Perkins agrees. He’s just released research entitled “Party like it’s 1999″, in he notes:

Markets: Asia’s markets have continued to show nervousness ahead of China’s Communist party meeting that begins Saturday. The ECB’s interest rate setting decision is due later today, as well as US third quarter GDP numbers. (Financial Times)

Two charts and some commentary from Credit Suisse that caught our eye today: The idea that increasingly obsolescent capital would push up the natural rate of interest and eventually drive an accelerating recovery isn’t new. It just keeps not happening.

Alexander Friedman, global chief investment officer of UBS AG, and his colleague Kiran Ganesh, cross asset strategist at UBS Wealth Management, share their thoughts on the core issues behind the Washington impasse. For reference, Friedman is American and oversees $1.7 trillion in managed assets… ————–

Asian stocks rise || Syrian fears push oil higher || Red flags found in JP Morgan Asian hiring probe || US Lloyd’s of London probe intensifies || Brazil raises interest rates again || Philippines GDP beats || Pimco eyes asset expansion || The worrying reality of Chinese debt

Asian markets mixed, HK closed due to typhoon || ‘Whale’ charges could be laid today || UK gilts reach 2-year high || UK unemployment today || BP sues US govt over new contract ban || Icahn pushes for bigger Apple buyback || China pressing ahead to cut industrial capacity || Whirlpool buys majority stake in Hefei Rongshida || Corporate profits and forecasts move in opposite directions

Among the factoids we came across while reading Books as Capital Assets, by Rachel Soloveichik of the BEA: 1) Book sales have tracked nominal GDP pretty closely for about sixty years:

This is what $560bn or so of newly-discovered US economic output looks like. Yes it’s the latest BEA estimates/revisions of US GDP. They’re out – and with 1.7 per cent growth in 2013′s second quarter, and 2012 growth revised up to 2.8 per cent from 2.2 per cent at the last estimate, they’re fairly good.

The BEA’s comprehensive benchmark revisions to the national income and product accounts will be released later today, and they’ll include the major conceptual changes announced earlier this year. If you want a straightforward summary of the changes and how they matter, we recommend Robin Harding’s piece from Monday. (And remember that the annual benchmark revisions, also to be released today, will affect numbers going back to 2010. Look for GDP and GDI, which had diverged markedly in the year through the end of Q1, to be revised towards each other.)

Japanese stocks fall || Publicis-Omnicom $35bn tie-up || European oil demand rises after 2 years || Siemens prepares to remove CEO || SFO to receive £2m special funding for Barclays || China to stop investigating Europe’s wine and polysilicon exports || Rio sells copper mine stake for $820m to China Molybdenum || Yellen has the best Fed forecasting record

Kate’s already noted some of the oddities in China’s latest GDP data. But it’s worth re-emphasising the ongoing contribution of investment to the figures.